Annual Statements Open main menu

Viewbix Inc. - Quarter Report: 2019 March (Form 10-Q)

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to _______________________

 

Commission file number: 000-15746

 

VIRTUAL CRYPTO TECHNOLOGIES, INC.
(Exact Name Of Registrant As Specified In Its Charter)

 

Delaware   68-0080601
(State of
Incorporation)
  (I.R.S. Employer
Identification No.)
     
11 Ha’amal Street, Rosh Ha’ayin, Israel   4809174
(Address of Principal Executive Offices)   (ZIP Code)

 

Registrant’s Telephone Number, Including Area Code: +972 3-600-3375

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act) or a smaller reporting company.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)   Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

On May 15, 2019, the registrant had 112,249,643 shares of common stock issued and outstanding.

 

 

 

   

 

 

VIRTUAL CRYPTO TECHNOLOGIES, INC.

 

TABLE OF CONTENTS

 

Item   Description   Page
         
    PART I - FINANCIAL INFORMATION    
         
ITEM 1.   FINANCIAL STATEMENTS   3
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS   4
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   7
ITEM 4.   CONTROLS AND PROCEDURES   8
         
    PART II - OTHER INFORMATION    
         
ITEM 1.   LEGAL PROCEEDINGS   9
ITEM 1A.   RISK FACTORS   9
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   9
ITEM 3.   DEFAULT UPON SENIOR SECURITIES   10
ITEM 4.   MINE SAFETY DISCLOSURE   10
ITEM 5.   OTHER INFORMATION   10
ITEM 6.   EXHIBITS   10
    SIGNATURES   12

 

 2 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018 F-1
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018 (Unaudited) F-2
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three Months Ended March 31, 2019 (Unaudited) and Year Ended December 31, 2018 F-3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited) F-4
Notes to Condensed Consolidated Financial Statements F-5

 

 3 

 

 

Virtual Crypto Technologies, Inc.

Condensed Consolidated Balance Sheets

 

   March 31, 2019   December 31, 2018 
   (Unaudited)     
Assets          
Current assets:          
Cash and cash equivalents  $447,967   $499,919 
Short term investment   -    17,242 
Other receivable   12,842    41,516 
Total current assets   460,809    558,677 
           
Total assets  $460,809   $558,677 
           
Liabilities and Stockholders’ Deficit          
Current liabilities:          
Accounts payable and accrued liabilities  $98,871   $13,115 
Accounts payable interest payable   8,227    - 
Employee payable   -    7,064 
Short term portion of convertible notes (Note 2)   503,217    485,449 
Liabilities held for sale   469,525    469,525 
Total current liabilities   1,079,840    975,153 
           
Total liabilities   1,079,840    975,153 
           
Stockholders’ deficit          
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued and outstanding at March 2019   -    - 
Common stock, $0.0001 par value; 490,000,000 shares authorized; 110,748,391 shares issued and outstanding at March 31, 2019 and December 31, 2018. (Note 3)   11,075    11,075 
Accumulated other comprehensive income   (19,337)   (19,337)
Additional paid-in capital (Note 3)   41,100,794    41,218,691 
Accumulated deficit   (41,711,563)   (41,626,905)
Total stockholders’ deficit   (619,031)   (416,476)
Total liabilities and stockholders’ deficit  $460,809   $558,677 

 

The accompanying notes are an integral part of these interim financial statements.

 

 F-1 

 

 

Virtual Crypto Technologies, Inc.

Condensed Consolidated Statements of Comprehensive Loss

For the Three Months ended March 31, 2019 and 2018

(Unaudited)

 

   Three months
ended
   Three months
ended
 
   March 31, 2019   March 31, 2018 
         
Expenses:          
Research and development   9,413    54,011 
Sales and marketing   -    310,000 
General and administrative   191,210    1,064,283 
Total operating expenses   200,623    1,428,294 
Loss from operations   (200,623)   (1,428,294)
Finance income (expense), net   115,965    (19,374,082)
Net loss  $(84,658)  $(20,802,376)
Basic and diluted net loss per share          
Basic and diluted loss per share  $(0.00)  $(0.51)
Weighted average shares outstanding - basic and diluted   110,748,391    41,048,456 

 

The accompanying notes are an integral part of these interim financial statements.

 

 F-2 

 

 

Virtual Crypto Technologies, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)

For the Three Months Ended March 31, 2019 and the Year Ended December 31, 2018

(Unaudited)

 

   Common   Preferred   Additional Paid-in   Receipt on Account of   Other Comprehensive   Accumulated   Total stockholders’ 
   Shares   Amount   Stock   Amount   Capital   Shares   Income   Deficit   deficit 
Balance as of December 31, 2017   22,543,008   $2,255    529   $-   $14,968,925   $80,000   $(19,337)  $(16,620,419)  $(1,588,576)
Common stock and warrants issued for cash   27,697,855    2,770    -              -    1,938,180    -    -    -    1,940,950 
Common stock issued for services   4,329,999    433              1,003,866                   1,004,299 
Warrants issued for services   -    -    -    -    146,376    -    -    -    146,376 
Exercise of stock options   62,500    6    -    -    57    -    -    -    63 
Issuance of new convertible note with a beneficial conversion feature   -    -    -    -    100,000    -    -    -    100,000 
Change in the terms of Convertible Note   -    -    -    -    22,581,508    -    -    -    22,581,508 
Partial conversion of convertible note to shares   55,543,600    5,554    -    -    549,836    -    -    -    555,390 
Cancellation of Preferred Shares   -    -    (529)   -    (150,000)   -    -    -    (150,000)
Issuance of Shares in respect of proceeds received during 2017   571,429    57    -    -    79,943    (80,000)   -    -    - 
Net loss for the year   -    -    -    -    -    -                              -    (25,006,486)   (25,006,486)
Balance as of December 31, 2018   110,748,391   $11,075    -   $-    41,218,691    -    (19,337)  $(41,626,905)  $(416,476)
Warrants issued for services   -    -    -    -    28,035    -    -    -    28,035 
Extension of convertible note   -    -    -    -    (145,932)   -    -    -    (145,932)
                                              
Net loss for the period   -    -    -    -    -    -    -    (84,658)   (84,658)
Balance as of March 31, 2019   110,748,391   $11,075    -   $-   $41,100,794   $-   $(19,337)  $(41,711,563)  $(619,031)

 

The accompanying notes are an integral part of these interim financial statements.

 

 F-3 

 

 

Virtual Crypto Technologies Inc

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2019 and 2018

(Unaudited)

 

  

Three months

ended

  

Three months

ended

 
   March 31, 2019   March 31, 2018 
Operating Activities:          
           
Net loss  $(84,658)  $(20,802,376)
Shares issued for services   28,035    892,300 
Finance (income) loss arising from change in terms of convertible notes   (145,932)   20,165,406 
Increase in net liabilities for sale   -    445,611 
Increase (decrease) in accounts payable and accrued expenses   78,692    (321,158)
Amortization of debt discount   17,768    - 
Loss from marketable securities   2,635     
Decrease in amounts due from related party   -    (721,530)
Increase in deferred revenues   -    50,000 
Increase (decrease) in accrued interest   8,227    (65,924)
Increase in other receivables   28,674    12,122 
Net cash used in operating activities   (66,559)   (345,549)
Investing Activities:          
Selling of marketable securities   

14,607

    - 
Net cash provided by investing activities   

14,607

    - 
           
Financing Activities:          
Proceeds from sale of common stock and warrants (net of issuance expenses)   -    1,575,072 
Exercise of options   -    63 
Issuance of Shares in respect of proceeds received during 2017   -    117,150 
Issuance of convertible note   -    100,000 
Net cash provided by financing activities   -    1,792,285 
           
Net (decrease) increase in cash   (51,952)   1,446,736 
Cash and cash equivalents - beginning of period   499,919    2,959 
Cash and cash equivalents - end of period  $447,967   $1,449,695 
           
Non-cash transactions:          
Conversion to shares of convertible loans   -    85,218 
Cancellation of preferred shares   -    (150,000)

 

The accompanying notes are an integral part of these financial statements.

 

 F-4 

 

 

Virtual Crypto Technologies, Inc.

For the Three Months Ended March 31, 2019 and 2018

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1. The Company and Significant Accounting Policies.

 

Organizational Background:

 

Virtual Crypto Technologies, Inc. (the “Company”) was incorporated in the State of Ohio in 1989 under a predecessor name, Zaxis International, Inc. (“Zaxis”). On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company, a Delaware corporation, which entity changed its name to Zaxis International, Inc. and the Company was reincorporated in Delaware under the name of Zaxis International, Inc. On December 30, 2014, Zaxis entered into an agreement with Emerald Medical Applications Ltd., a private limited liability company organized under the laws of the State of Israel (“Emerald Israel”).

 

On March 16, 2015, Zaxis and Emerald Israel executed the Share Exchange Agreement, which closed on July 14, 2015 (the “Share Exchange Agreement”) and Emerald Israel became the Company’s wholly-owned subsidiary. Emerald Israel was engaged in the business of developing Emerald Israel’s DermaCompare technology and the development, sale and service of imaging solutions utilizing its DermaCompare software for use in derma imaging and analytics for the detection of skin cancer.

 

On January 17, 2018, the Company formed a new wholly owned subsidiary under the laws of the State of Israel, Virtual Crypto Technologies Ltd. (the “Subsidiary”), to develop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of cryptocurrencies through ATMs, tablets, personal computers (“PCs”) and/or mobile devices.

 

Going Concern:

 

The Company has incurred significant operating losses and negative cash flows from operating activities in relation to its operations, since inception. While the Company raised approximately $1.9 million in the year ended December 31, 2018 to fund the operations of its New Subsidiary, the Company will require additional capital resources in order to support the commercialization of the New Subsidiary’s technology and operations and maintain its research and development activities related to the New Subsidiary’s technology. The Company is addressing its liquidity needs by seeking additional funding from public and/or private sources. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the Company’s short and long-term requirements, or at all these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty

 

Basis of Presentation and Significant Accounting Policies:

 

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Subsidiary, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q. The financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the period. However, these results are not necessarily indicative of results for any other interim period or for the full fiscal year. The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.

 

 F-5 

 

 

Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”). The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 28, 2019 (the “Annual Report”).

 

 F-6 

 

 

Recent Accounting Standards announced

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments apply to reporting entities that are required to make disclosures about recurring or nonrecurring fair value measurements and should improve the cost, benefit, and effectiveness of the disclosures. ASU 2018-13 categorized the changes into those disclosures that were removed, those that were modified, and those that were added. The primary disclosures that were removed related to transfers between Level 1 and Level 2 investments, along with the policy for timing of transfers between levels. In addition, disclosing the valuation processes for Level 3 fair value measurements was removed. The amendments are effective for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company notes that this guidance will impact its disclosures beginning January 1, 2020.

 

Note 2. Convertible Notes.

 

The following convertible promissory notes bear interest at 1% per annually, are convertible at a price of $0.01 per share and are repayable through January 1, 2020.

 

   March 31, 2019   December 31, 2018 
         
Principle  $503,217   $1,058,611 
Conversion of convertible notes to shares   -    (555,394)
Accrued interest   8,227    - 
Discount   -    (17,768)
Total   511,444    485,449 

 

 F-7 

 

 

Note 3. Stockholders’ Equity.

 

The following table summarizes information of outstanding warrants issued to investors and consultants in exchange for their services as of March 31, 2019:

 

   Warrants   Warrant Term  Exercise Price   Exercisable 
Investors – Class F (*) Warrants   2,142,857   April 2019  $0.14    2,142,857 
Investors – Class G (*) Warrants   2,142,857   April 2019  $0.28    2,142,857 
Investors - Class H Warrants   750,000   January 2020 -March 2020  $0.14    750,000 
Investors - Class I Warrants   571,429   January 2020  $0.14    571,429 

 

(*) Subsequent to the balance sheet date, these warrants expired.

 

 F-8 

 

 

Note 4. Related Party Transactions.

 

Other than transactions and balances related to cash and share based compensation to officers and directors and other than the issuances of convertible debt to certain investors, and payments in respect of consulting fees to certain shareholders with beneficial holdings of greater that 5% of $75,000 and $ nil during the three months ended March 31, 2019 and 2018, respectively, the Company did not have any transactions and balances with related parties and executive officers during these periods.

 

As a result of the issuance of the convertible notes in the prior years, certain may hold convertible notes allowing them to convert the notes in excess of 5% of the Company’s issued and outstanding shares of common stock. Accordingly, such investors may be deemed to be related parties under Item 404(a) of Regulation S-K. In addition, certain investors receive fees for consulting services provided to the Company, as noted above.

 

Note 5. Subsequent Events.

 

On May 2, 2019, the company issued 750,000 restricted shares to the Company’s CEO and 750,000 restricted shares to the Company’s CFO in the lieu of services provided to the Company. The fair value of the 1,500,000 restricted shares was $51,300.

 

 F-9 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

 

Special Note Regarding Forward-Looking Statements

 

The following management’s discussion and analysis section should be read in conjunction with the Company’s unaudited financial statements as of March 31, 2019 and 2018, and the related statements of comprehensive loss, statement of changes in stockholders’ equity (deficit) and statements of cash flows for the three months then ended, and the related notes thereto contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”). This management’s discussion and analysis section contains forward-looking statements, such as statements of the Company’s plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions “will,” “may,” “could,” “should,” etc., or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These factors include those contained in section captioned “Risk Factors” of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2019 (the “Annual Report”). The Company’s actual results could differ materially from those contemplated in these forward-looking statements as a result of these factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.

 

Overview and background

 

On January 17, 2018, Virtual Crypto Technologies, Inc. (the “Registrant” or “Company”) formed Virtual Crypto Technologies Ltd as a new wholly-owned subsidiary under the laws of the State of Israel (“Virtual Crypto Israel”) and appointed Mr. Alon Dayan, who has served as the Registrant’s Chief Executive Officer since June 30, 2018 and has been a member of the Company’s Board of Directors since March 14, 2018, as CEO of Virtual Crypto Israel. Virtual Crypto Israel was formed to develop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of cryptocurrencies through ATMs, tablets, PCs and/or mobile devices (the “Products”).

 

On January 29, 2018, pursuant to resolution of the Registrant’s Board of Directors, the Registrant transferred the management shares of the Registrant’s former Israeli subsidiary, Emerald Medical Applications Ltd. (“Emerald IL”) to Attorney Eviatar Knoller, Esq., with offices in Tel Aviv-Jaffa, Israel, as trustee (the “Trustee”) for the purpose of enabling the Trustee to liquidate the management shares and/or the assets of Emerald IL to satisfy its debts.

  

 4 

 

 

Recent Developments

 

Share Exchange Agreement

 

The operations of Virtual Crypto Israel only generated revenues of $100,000 during the year end December 31, 2018 from one customer, Chiron, who has encountered financial difficulties. During 2018, we spent $790,413 in order to develop our systems in an industry that has experienced significant difficulties over the last 18 months. We believe that this has led to a decrease in the anticipated demand for Virtual Crypto Israel’s products and services. Therefore, on February 7, 2019, we filed a Form 8-K reporting that the Registrant entered into a share exchange agreement (the “Share Exchange Agreement”) with Algomizer Ltd., an Israeli Corporation (“Algomizer”), pursuant to which Algomizer will assign, transfer and deliver its 99.83% holdings in Viewbix Ltd., an Israeli corporation, to us in exchange for shares of restricted common stock of representing 65% of the issued and outstanding share capital of the Company on a fully diluted basis on the closing date, excluding certain warrants to purchase shares of common stock, which will expire in 2020 and with an exercise price representing a valuation equal to $30,000,000 (“Fully Diluted Share Capital”). In addition, upon the earlier of: (a) the launch of a live video product to an American consumer in the U.S by Viewbix Ltd., or (b) the launch of an interactive television product to an American consumer in the U.S., Viewbix Ltd., we will issue Algomizer additional shares of restricted common stock of the Company representing 5% of the Fully Diluted Share Capital.

 

Furthermore, on the closing date, we will issue Algomizer: (i) warrants to purchase shares of restricted common stock with an exercise price representing a valuation for the Company of $15,000,000 on Fully Diluted Share Capital basis, which will represent 10% of the Fully Diluted Share Capital immediately following the closing, which warrants will be exercisable for a period of ten years, and (ii) warrants to purchase shares of restricted common stock with an exercise price representing a valuation for the Company of $25,000,000 on Fully Diluted Share Capital basis, which will represent 10% of the Fully Diluted Share Capital immediately following the closing, which latter warrants will be exercisable for a period of ten years.

 

The closing of the Share Exchange Agreement is conditioned upon us filing an amendment to our certificate of incorporation to change the Company’s name to ViewBix Inc., effecting a reverse split of our shares of common stock at a ratio of 1:15, which we intend to effect whether or not the transactions under the Share Exchange Agreement will consummate, conversion of our outstanding convertible notes into shares of restricted common stock and Algomizer obtaining a tax pre-ruling from the Israeli Tax Authority relating to the Share Exchange Agreement.

 

ViewBix Ltd., through its ViewBix Studio, provides its clients with a video engagement platform designed to add enhanced branding and interactive elements – from call-to-action buttons to email captures – to digital videos. ViewBix Studio is simple, intuitive and requires no coding experience, thereby enabling clients to enhance videos and publish them across any platform, for any device in just minutes. Videos enhanced by Viewbix are compatible with existing ad serving, measurement and analytics platforms and easily work within existing agency or client processes for launching advertising campaigns. Beyond adding interactions to video, Viewbix uses second-by-second measurement of engagements to uncover contextual insights as to what, when and how users are engaging or responding to brand messaging.

 

 5 

 

 

Reverse Stock Split

 

On February 26, 2019, stockholders holding a majority of our outstanding shares of common stock approved an amendment to our certificate of incorporation in order to affect a reverse stock split of the of our common stock on a 1-for-15 basis. We intend to affect such reverse stock split once all approvals for such actions are obtained.

 

Pursuant to the Reverse stock split, each fifteen (15) shares of our common stock will be automatically converted, without any further action by our stockholders, into one share of common stock. No fractional shares will be issued as the result of the reverse stock split. Instead, each stockholder will be entitled to receive one share of common stock in lieu of the fractional share that would have resulted from the reverse stock split.

 

Results of Operations

 

Results of Operations During the Three Months Ended March 31, 2019 as Compared to the Three Months Ended March 31, 2018

 

Our research and development expenses were $9,413 for the three months ended March 31, 2019, as compared to $54,011 during the same period in the prior year. The decrease was due to downsizing of the research and development team expenses and slowdown in the development for our virtual crypto products.

 

Our general and administrative expenses decreased to $191,210 for the three months ended March 31, 2019 as compared to $1,064,283 during the same period in the prior year. The significant decrease was due to non-cash consulting expenses in 2018 paid by way of issuances of the Company’s shares and warrants to certain consultants who assisted in the establishment of the new business.

 

Our marketing expenses decreased to $ nil for the three months ended March 31, 2019 as compared to $310,000 during the same period in the prior year. The significant decrease was due to the reduction in operations.

 

Interest income increased to $115,965 for the three months ended March 31, 2019, as compared to interest expenses of $19,374,082 during the same period in the prior year. The income during the period in 2019 was primarily as a result of the changes of the terms of certain convertible notes that occurred during the three months ended March 31, 2019. The significant expenses in 2018 is as a result of the changes of the terms of certain convertible notes that occurred during the three months ended March 31, 2018, primarily, the decrease in the conversion price per share from $0.14 to $0.01 per share.

 

 6 

 

 

Liquidity and Capital Resources

 

Our balance sheet as of March 31, 2019 reflects current assets of $460,809 consisting of cash of $447,967 cash and other receivables of $12,842. We also have $1,079,840 in current liabilities consisting of $98,871 in accounts payable and accrued liabilities, $8,227 in accrued interest, short-term portion of convertible notes of $503,217 and liabilities held for sale of $469,525. As of December 31, 2018, we had current assets of $558,677 consisting of $499,919 in cash and other receivables of $41,516 and marketable securities of $17,242. As of December 31, 2018, we had $975,153 in current liabilities consisting of $13,115 in accounts payable and accrued liabilities, $7,064 employee payable, and short-term portion of convertible notes of $485,449 and liabilities held of sale in respect of our discontinued operations of $469,525.

 

We had negative working capital of $619,031 as of March 31, 2019, as compared to negative working capital of $416,476 at December 31, 2018. Our total liabilities as of March 31, 2019 were $1,079,840, as compared to $975,153 at December 31, 2018.

 

During the period ended March 31, 2019, we had negative cash flow from operations of $66,559, which was the result of a net loss of $84,658, decrease in provision for settlements of convertible loan of $145,932, increase in accrued interest and amortization of discount on convertible notes of $17,768 loss from marketable securities $2,635 and $28,035 shares and warrants issued for services, offset by net changes in working capital of $36,901.

 

During the period ended March 31, 2018, we had negative cash flow from continuing operations of $345,449, which was the result of a net loss of $20,802,376, increase in accrued interest and amortization of discount on convertible notes of $20,165,406 and $892,300shares and warrants issued for services, offset by net changes in working capital of $600,799.

 

During the three months ended March 31, 2019, we had positive cash flow from investing activities of $14,607 which was the result of selling marketable securities, as compared to nil at December 31, 2018.

 

During the period ended March 31, 2019, we had no cash flow effect from financing activities.

 

During the period ended March 31, 2018, we had positive cash flow from financing activities of $1,792,285, which was the result of $1,575,072 proceeds from issuance of equity, $117,150 of receipt on account of shares, $100,000 from the issuance of convertible notes and $63 for the eservice of options.

 

There are no limitations in the Company’s Certificate of Incorporation on the Company’s ability to borrow funds or raise funds through the issuance of shares of its common stock to affect a business combination. The Company’s limited resources and lack of having cash-generating business operations may make it difficult to borrow funds or raise capital. The Company’s limitations to borrow funds or raise funds through the issuance of restricted capital stock required to effect or facilitate a business combination may have a material adverse effect on the Company’s financial condition and future prospects, including the ability to complete a business combination.

 

Until such time as the Company can generate substantial revenues, the Company expects to finance its cash needs through a combination of the sale of its equity and/or convertible debt securities, debt financing and strategic alliances and collaborations. The Company does not have any committed external source of funds. To the extent that the Company raises additional capital through the sale of its equity and/or convertible debt securities, the ownership interest of its stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. To the extent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest, including debt of an acquired business. If the Company raises funds through additional collaborations or strategic alliances with third parties, we may have to relinquish valuable rights to our future revenue streams and/or distribution arrangements. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. If the Company is unable to raise additional funds through equity and/or debt financings when needed or on attractive terms, the Company may be required to delay, limit, reduce or terminate the operations of some or all of its business segments.

 

Going Concern:

 

The Company has incurred significant operating losses and negative cash flows from operating activities in relation to its operations, since inception. While the Company raised approximately $1.9 million in the year ended December 31, 2018 to fund the operations of its New Subsidiary, the Company will require additional capital resources in order to support the commercialization of the New Subsidiary’s technology and operations and maintain its research and development activities related to the New Subsidiary’s technology. The Company is addressing its liquidity needs by seeking additional funding from public and/or private sources. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the Company’s short and long-term requirements, or at all these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

 7 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of March 31, 2019, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation (the “Evaluation”) regarding the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures required by Rules 13a-15 or 15d-15, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of March 31, 2019 under the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) because of certain material weaknesses.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Inherent Limitations on Effectiveness of Controls and Procedures

 

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or its internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The Company’s control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 8 

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations, except as set forth below. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company, threatened against or affecting our company, our common stock, our officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect, other than as set forth below.

 

In April 2017, a lawsuit was filed with the Tel Aviv court by Mr. Wayn claiming certain damages to the total amount of $100,000, under the assertion of wrongful dismissal by the Registrant and Emerald IL. The Registrant believes these claims to be unsubstantiated and wholly without merit and intends to defend itself against these claims. The Company believes that he will not be successful in his claim. Nevertheless, the outcome of the proceeding will not materially affect the Registrant.

 

In December 2017, a liquidation request was filed with the Tel Aviv District Court by a group of former employees of Emerald IL, under the assertion of delay of pay and insolvency. On December 20, 2017, at a hearing before the court, it was ordered that the Emerald IL shall settle its pension debts to the former employees under applicable Israeli law within 21 days and settle its other debts to them in 60 days, the failure of which would result in a winding-up order (the equivalent of a liquidation) could be given. Based on the collaboration of Emerald IL and its former employees and the fact that the Company was in negotiation with third-parties for the infusion of equity capital and has started negotiating the sale of certain assets, the Company’s legal advisors believe that the liquidation claim will be dismissed by the court. The amounts being claimed by the former employees was less than $96,000 and are included in current liabilities at December 31, 2018.

 

On January 29, 2018, the “Registrant”) transferred the ordinary shares of the Registrant’s former Israeli subsidiary, Emerald IL to Attorney Eviatar Knoller, Esq., with offices at 20 Lincoln, Tel Aviv-Jaffa 6713412, as trustee (the “Trustee”). The purpose of the transfer of the management shares to the Trustee, pursuant to resolution of the Registrant’s Board of Directors, was to enable the Trustee to liquidate the management shares and/or the assets of Emerald IL to satisfy its debts and satisfy its financial obligations to former employees. As a result, the former employees of Emerald IL commenced an action in a court of competent jurisdiction in Israel to liquidate Emerald IL and use any assets to satisfy the debts owed to the former employees.

 

ITEM 1A. RISK FACTORS

 

See risk factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report filed on Form 10-K with the SEC March 29, 2019.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None. 

 

 9 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

On May 2, 2019 the Company issued 750,000 shares of its common stock to the Chief Executive Officer and 750,000 shares of its common stock to the Chief Financial Officer in consideration for services provided to the Company during the first quarter of 2019.

 

ITEM 6. EXHIBITS

 

(a) The following documents are filed as exhibits to this Quarterly Report or incorporated by reference herein.

 

Exhibit

Number

  Description
2.1±   Share Exchange Agreement, dated as of March 15, 2015, among the Company, Emerald Medical Applications Ltd. and the shareholders of the Company as set forth on the signature pages to the agreement (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on March 16, 2015).
     
3.1   Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, filed with the SEC on August 8, 2017).
     
3.2   Certificate of Amendment to the Certificate of Incorporation of the Company, reflecting name change to Zaxis International, Inc. (Incorporated by reference to Exhibit 3.1(a) to the Company’s Registration Statement on Form S-1, filed with the SEC on August 8, 2015).
     
3.3   Certificate of Amendment to the Certificate of Incorporation of the Company, reflecting reverse stock split (Incorporated by reference to Exhibit 3.1(b) to the Company’s Registration Statement on Form S-1, filed with the SEC on August 8, 2015).
     
3.4*   Certificate of Amendment to the Certificate of Incorporation of the Company, reflecting name change to Virtual Crypto Technologies, Inc.
     
3.5   Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, filed with the SEC on August 8, 2017).
     
3.6   Certificate of Designation of the Company for Series A Preferred Convertible Stock (Incorporated by reference to Exhibit 10.42 to the Company’s Current Report on Form 8-K, filed with the SEC on September 1, 2017).
     
4.1   Form of Class A Warrant Agreement (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, Amendment No. 1, filed with the SEC on July 15, 2015).
     
4.2   Form of Class E Warrant Agreement (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, Amendment No. 1, filed with the SEC on July 15, 2015).
     
4.3   Form of Class B Warrant Agreement (Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1, filed with the SEC on August 8, 2015).
     
4.4   Form of Class C Warrant Agreement (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1, filed with the SEC on August 8, 2015).
     
10.1   Loan Agreement, dated as of February 2, 2015, between the Company and Emerald Medical Applications Ltd. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on February 3, 2015).

 

 10 

 

 

10.2   Loan Agreement, dated as of March 19, 2015, between the Company and Emerald Medical Applications Ltd. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the SEC on March 24, 2015).
     
10.3   Loan Agreement, dated as of June 2, 2015, between the Company and Emerald Medical Applications Ltd. (Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed with the SEC on June 5, 2015).
     
10.4   Form of Look-Up Agreement between the Company and Selling Securityholders and Class B Warrant Holders (Incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1, filed with the SEC on August 5, 2015).
     
10.5   Equity Purchase Agreement, dated as of May 12, 2016, between the Company and Kodiak Capital Group LLC (Incorporated by reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K, filed with the SEC on May 18, 2016).
     
10.6   Registration Rights Agreement, dated as of May 12, 2016, between the Company and Kodiak Capital Group LLC (Incorporated by reference to Exhibit 10.21 to the Company’s Current Report on Form 8-K, filed with the SEC on May 18, 2016).
     
10.7   Securities Purchase Agreement, dated as of June 20, 2016, between the Company and Alpha Capital Anstalt (Incorporated by reference to Exhibit 10.22 to the Company’s Current Report on Form 8-K, filed with the SEC on June 22, 2016).
     
10.8   Registration Rights Agreement, dated as of June 20, 2016, between the Company and Alpha Capital Anstalt (Incorporated by reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K, filed with the SEC on June 22, 2016).
     
10.9   Convertible Note in the principal amount of $400,000, dated as of June 20, 2016, issued to Alpha Capital Anstalt (Incorporated by reference to Exhibit 10.24(i) to the Company’s Current Report on Form 8-K, filed with the SEC on June 22, 2016).
     
10.10   Convertible Note in the principal amount of $40,000, dated as of June 20, 2016, issued to Alpha Capital Anstalt (Incorporated by reference to Exhibit 10.24(ii) to the Company’s Current Report on Form 8-K, filed with the SEC on June 22, 2016).
     
10.11   Security Agreement, dated as of June 20, 2016, between the Company, Emerald Medical Applications Ltd. and Alpha Capital Anstalt (Incorporated by reference to Exhibit 10.27 to the Company’s Current Report on Form 8-K, filed with the SEC on June 22, 2016).
     
10.12   Securities Purchase Agreement, dated July 7, 2016, between the Company and Firstfire Global Opportunities Fund (Incorporated by reference to Exhibit 10.30 to the Company’s Current Report on Form 8-K, filed with the SEC on July 29, 2016).
     

10.13

 

  Registration Rights Agreement, dated as of July 7, 2016, between the Company and Firstfire Global Opportunities Fund (Incorporated by reference to Exhibit 10.31 to the Company’s Current Report on Form 8-K, filed with the SEC on July 29, 2016).
     
10.14   Convertible Note in the principal amount of $100,000, dated as of July 7, 2016, issued to Firstfire Global Opportunities Fund (Incorporated by reference to Exhibit 10.32 to the Company’s Current Report on Form 8-K, filed with the SEC on July 29, 2016).
     
10.15   Settlement Agreement, dated August as of 7, 2017, among the Company and Alpha Capital Anstalt and Chi Squared Capital, Inc. (Incorporated by reference to Exhibit 10.37 to the Company’s Current Report on Form 8-K, filed with the SEC on September 1, 2017).
     
10.16   Secured Convertible Note due June 20, 2019 issued by the Company to Alpha Anstalt Capital (Incorporated by reference to Exhibit 10.38 to the Company’s Current Report on Form 8-K, filed with the SEC on September 1, 2017).
     
10.17   Secured Convertible Note due June 20, 2019 issued by the Company to Chi Squared Capital, Inc. (Incorporated by reference to Exhibit 10.39 to the Company’s Current Report on Form 8-K, filed with the SEC on September 1, 2017).
     
10.18   Class A Warrants issued by the Company on June 20, 2016 to Alpha Anstalt Capital (Incorporated by reference to Exhibit 10.40 to the Company’s Current Report on Form 8-K, filed with the SEC on September 1, 2017).
     
10.19   Class A Warrants issued by the Company on June 20, 2016 to Chi Squared Capital, Inc. (Incorporated by reference to Exhibit 10.41 to the Company’s Current Report on Form 8-K, filed with the SEC on September 1, 2017).
     
10.20†*   Services Agreement, dated as of February 15, 2018, between the Company and Yair Fudim.
     
31.1*   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
     
31.2*   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
     
32.1**   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS£   XBRL Instance Document
     
101.INS£   XBRL Taxonomy Extension Schema Document
     
101.CAL£   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF£   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB£   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE£   XBRL Taxonomy Extension Presentation Linkbase Document
     
  Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 15(a)(3) of Form 10-K.
     
*   Filed herewith.
     
**   Furnished herewith.
     
±   Schedules have been omitted pursuant to Item 601(b)(ii) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the SEC upon request.
     
£   To be filed by an amendment to this Quarterly Report.

 

 11 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  VIRTUAL CRYPTO TECHNOLOGIES, INC.
   
  By: /s/ Alon Dayan
  Name: Alon Dayan
  Title: Chief Executive Officer             
Date: May 15, 2019   (Principal Executive Officer)

 

  By: /s/ Gadi Levin
  Name: Gadi Levin
  Title: Chief Financial Officer
    (Principal Financial Officer and Principal Accounting Officer)
Date: May 15, 2019    

 

 12